Middle East: Investing for the future

By Rebecca Lowe


As stock markets fall amidst popular uprisings, what price democracy?

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Long-term confidence in the Middle East and North Africa remains high despite unrest and tumbling share prices, say local lawyers – but opinions are divided over the true economic impact of democratic reform.

For some, free elections and a strong rule of law equate to long-term economic growth and investment opportunity. For others, stability is the key to steady transaction flow – and calls for democracy a potential distraction.

'Artificial stability'

‘In the long term, I don’t think it is a good idea to buy stability at the expense of the rule of law, which I think is what may have been happening in some of these jurisdictions,’ says Jay Fortin, head of Al Tamimi & Company’s Qatar office. ‘Any time you create artificial stability by supporting a regime that doesn’t respect individual rights and fundamental property rights, in the long run that is not a good idea.’

Jay Fortin

Jay Fortin, Al Tamimi&Co, Qatar

He adds: ‘Even if it looks like you have stability and a regime that you can do business with, but which is repressing groups of people, you have to worry about the long-term political risk. And you can see that in the credit ratings of these countries.’

Reema Ali, Managing Partner at Ali & Partners, based in Libya, agrees. ‘None of the countries had governmental institutions that functioned properly, which impacts all business transactions. This is a turning point, where people are determined to have transparent government agencies that will actually streamline things.’

Doing business in Libya under Muammar Gaddafi, Ali adds, has always been particularly difficult. ‘The uncertainty is very high – though the rewards are high too, which is why people went there.

‘There has been too much government and no governing, and those who matter do not hold proper portfolios or positions, so you end up tackling one layer of bureaucracy after another, and are never sure what is going to happen.’

Reema Ali

Reema Ali, Ali & Partners, Libya

The long-term foreign currency credit ratings of Egypt, Tunisia, Libya, Bahrain, Jordan, Oman and Lebanon have all suffered since unrest spread across the region. Fitch downgraded Tunisia's rating to BBB- from BBB on 2 March due to continued concerns about political uncertainty. On 10 March, however, Standard & Poor’s removed Egypt from review for a downgrade of its BB rating, citing improved prospects for political transition.


In a blog on 11 March, Mark Mobius, Executive Chairman of Templeton Emerging Marketing Group, was adamant economic growth in the Middle East could recover and improve in the long-term ‘if governments implement the right policies’.

Mobius’ trust has no investments in the region, but the $1.1bn Templeton Emerging Frontier Markets Fund, which Mobius also runs, had 6.9 per cent of its assets invested in Egypt at the end of January. A further 7.1 per cent was invested in Qatar, 7.4 per cent in Saudi Arabia and six per cent in the United Arab Emirates – though nothing in Libya.

Mobius writes: ‘Increased freedom, increased democracy and decreased corruption are possible developments as a result of the political upheaval in the region, and these potential outcomes will indeed be positive. For these economies to truly thrive, the opportunities for small business growth and entrepreneurialism must be improved.’



 ‘In the long term, I don’t think it is a good idea to buy stability at the expense of the rule of law'

Jay Fortin
Al Tamimi & Co, Qatar


'Stability takes priority'

Yet not all are convinced by the investment potential of freedom and accountability. Campbell Steedman, Norton Rose Senior Partner in the Middle East, admits that ‘change brings opportunity, because there is always someone looking to invest in that process of change’, but believes that stability takes priority.

‘In a market such as this, I think rule of law, from an investment perspective, has been historically overlooked if there is stability,’ he says. ‘Of the two, stability gives investors greater confidence than change. Though frequent change may improve the law slightly, it may be a destabilising factor for investors because they base their investment on predictability.’

Parallels with Eastern Europe

The situation in the Arab states is not dissimilar to that in Eastern Europe after the fall of Communism, according to Steedman, who worked in the region from 1990 to 2005.

‘I saw the whole change there and the way in which investors’ confidence went into Ukraine and Bulgaria and everywhere else,’ he says. ‘And people would say the legal system is still not perfect, the judiciary is not independent, but it didn’t stop investors coming in. They factored it into their risk profile, but they would still invest.’